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After an agency settles a false advertising suit, how scared should the industry be of the FTC?

by Zoë Beery
August 30, 2017

An advertising lawyer explains what marketers can learn from this unusual case.

Near-instant memory improvement, miraculous joint pain recovery and reversal of a decade’s worth of cognitive decline are just a few of the things dietary supplements CogniPrin and Flexiprin claim to do. The Federal Trade Commission begs to differ.

In a false advertising suit settled last week, the FTC slapped the supplement’s manufacturers—and in an unusual move, the advertisers who helped to sell the products—with heavy fines and a consent decree.

Direct marketing firm Synergixx and its principals Charlie R. Fusco and Ronald Jahner now face a $6.5 million sanction (which is on hold due to inability to pay) and a 20-year bar on certain advertising practices. It’s a punishment that might leave other firms quaking in their well-heeled boots. But just how nervous should they be?

"It’s a bit of a warning signal—the FTC has said they may be looking more closely at the role agencies play in the creation of advertising, and that there may be increased enforcement action among those lines." said Linda Goldstein, a partner and head of the advertising, marketing and digital media team at law firm BakerHostetler. "We’ve seen over the last few years a consistent pattern where the FTC is looking to go as far up and down the food chain as they can. The more parties facing potential liability, from an FTC vantage point, that all helps to create an environment where violations are less likely to occur."

The settlement closes a case brought by the FTC and the attorney general of Maine in February that took aim at nearly every element of the marketing campaign for the supplements (which, like all dietary products sold in the US, went directly to market without FDA evaluation). Elements of the campaign created by Synergixx included radio segments misleadingly presented as talk shows that didn’t disclose guests’ connection with the supplement manufacturer, print ads with fictitious endorsements and an "unconditional 90-day money-back guarantee" whose scripts (written by the agency) failed to disclose the burdensome nature of the process through which consumers could obtain refunds.

Counterintuitive as it may seem, it’s rare for federal investigations to include campaign creators in false advertising actions. When the FTC brought suit in 2016 against Volkswagen over a campaign that touted the automaker’s "clean diesel" line as being exceptionally environmentally friendly, it did not name the multiple agencies that had produced those ads. It only named VW, because the company had fitted the cars with devices to obscure massive—and massively illegal—emissions levels during testing, a level and type of malfeasance that fell outside what an agency should be expected to verify when evaluating a client’s claims. As Georgetown Law professor Rebecca Tushnet told Campaign US at the time, "the software was deliberately programmed to give bad results, [so] I don’t think the ad agency was under any duty to say ‘Hey, you didn’t by any chance fake your results, did you?’"

The CogniPrin case is more similar to a 2014 FTC suit against Sony that alleged the company had inflated claims about the capabilities of the technology in its new Vita console, a suit that also implicated the agency that marketed the device: Deutsch LA was indicted for encouraging its own employees to post positive tweets about the Vita without disclosing that they worked for the agency and were not actual product users.

"Because the agency was the one that engaged the influencers, the FTC felt the agency had a great responsibility," said Goldstein. As with the campaign for the supplements, the Commission was taking issue not with the agency’s failure to root out the false claims themselves, but with the misleading manner in which it presented those claims.

So long as agencies aren’t running such deceptive campaigns, they should be safe from FTC investigations. But that doesn’t mean they shouldn’t blindly trust their clients, either, said Goldstein. "You don’t necessarily have to go as far as your client does in ensuring that the claims are truthful, but you have to do due diligence." Even if the contract shields an agency from liability in criminal court for a client’s false statements, those protections won’t hold up if a regulatory body gets involved. "Even if as an agency you are indemnified by your client, the FTC does not care," she said. "Indemnities will not shield you against an FTC action."

And, she added, neither will an unpredictable president. "I think a lot of companies have questioned whether, under a Republican administration, there’s going to be a shift away from what has been a fairly aggressive Commission," she said. "This is another reminder that’s not the case. If the FTC believes there’s been real consumer injury, they’re going to continue to prosecute those cases with the same degree of vengeance."